Crude Oil Price and Macroeconomic Variables Nexus: Impact on Nigeria’s Economic Growth

Abstract

It is no longer news that Nigeria runs a single-product economy where the only source of revenue for the country is crude oil exportation. Changes in the prices of crude oil in the international market continue to have severe implications on the country's economy's growth rate, exchange rate and even inflation. This study seeks to investigate the impact of four key variables (crude oil price, real exchange rate, inflation and population) on Nigeria’s economic growth. This is to give necessary policy makers a clear direction on the inter-relationship of these explanatory variables on the economic growth of Nigeria. This study employs annual time series data obtained from the World Development Indicator (WDI). Augmented Dickey Fuller (ADF) test was used to determine the presence of unit roots among the variables before the Johansen Before the Johansen Cointegration test and Vector Error Correction Model (VECM) were carried out to determine the co-integration and relationships existing among the variables. The study reveals that all the variables were all integrated at the first order I which necessitated the presence of a long-run of a long-run relationship among the variables; this is further confirmed by the Johansen Cointegration test carried out. The findings of this study clearly show that the explanatory variables used in this study are all significant on the response variable (GDP) in both long-run and short-run. The rise and fall in the prices of crude oil have negatively affected Nigeria’s economic growth, real exchange rate and are equally responsible for the inflationary increase in the country in the long run.